Edited version of private advice

Authorisation Number: 1051604036809

Date of advice: 11 November 2019

Ruling

Subject: Residency status

Question 1

Are you a resident of Australia for taxation purposes?

Answer

Yes.

Question 2

Is your employment income derived while working overseas assessable income in Australia?

Answer

No.

This ruling relates to the following periods

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on

1 July 20XX

Relevant facts

You were born in Australia.

You hold a country A passport.

You have an employment contract in country B. Your remuneration will be paid into a foreign bank account. The contract has an opportunity for renewal. It is unlikely that the contract will be reduced or extended.

You are being paid by an Australian entity while in country B. Your salary is taxed in country B.

Your employer provided accommodation for one month as part of the moving package. No further overseas living assistance is being received.

You arrived in country B and commenced your employment soon after. Your spouse arrived on a few weeks later.

You are regarded as country B tax resident.

Your position in Australia is being held while in country B.

Your intention is to live in country B for the duration of the employment contract.

Your main residence in Australia will be rented out while living in country B. Your household items and furniture and cars have been placed in storage.

Your rental property in Australia will continue to be rented out while in country B.

Your spouse will continue to perform work for the Australia business for a short period of time when first in country B. When your spouse returns to Australia, he will return to his current full-time employment arrangement.

Your Australian employer paid for your visa fees and a tourist visa for your spouse and child. Your spouse has applied for a country B work visa.

Your child has been enrolled in a day-care facility for some days a week.

Your Australian bank accounts will remain open as the accounts are linked to mortgages on properties.

Mail will be re-directed to your country B address once you have a lease arrangement.

You intend to visit friends and family in Australia during the period for short term holidays.

Centrelink will be notified of your departure. You are also planning to notify the Australian Electoral Commission and Medicare of your departure.

You cancelled your private health insurance for two years only.

You do not have extended family in country B. The only country B asset you have is a car which was recently purchased. You plan to sell the car at the conclusion of the stay.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1936 subsection 6(1)

International Tax Agreements Act 1953 section 4

Reasons for decision

Residency

Residency status is a question of fact.

The term Australian resident is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) to mean a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

Subsection 6(1) of the ITAA 1936 provides four tests to determine whether a person is a resident of Australia for income tax purposes. These tests are:

·         the resides test;

·         the domicile and permanent place of abode test;

·         the 183 day test; and

·         the Commonwealth superannuation fund test.

The primary test for deciding the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word resides. However, where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be a resident of Australia for tax purposes if they satisfy the conditions of one of the other three tests.

The resides test

The Macquarie Dictionary defines reside as to dwell permanently or for a considerable time, have ones abode for a time.

The Shorter Oxford English Dictionary defines reside as to dwell permanently, or for a considerable time, to have ones settled or usual abode, to live in or at a particular place.

As a general concept, residence includes two elements: physical presence and the intention to treat the place as home. The period of physical presence in Australia is not by itself decisive when determining whether an individual resides here. All the facts and circumstances that describe an individual's behaviour in Australia are relevant in determining the residency status. No single factor is necessarily decisive. The following factors are useful when determining whether a person is residing in Australia:

·         intention or purpose of presence,

·         family and/or employment ties,

·         maintenance and location of assets, and

·         social and living arrangements.

Recent case law decisions have considered the following factors are also relevant in determining whether a person is an Australian resident for taxation purposes:

·         physical presence in Australia

·         nationality

·         history of residence and movements

·         habits and mode of life

·         frequency, regularity and duration of visits to Australia

·         purpose of visits to or absences from Australia

·         family and business ties to different countries and

·         maintenance of place of abode.

Residence was discussed in Joachim v FCT 2002 ATC 2088. In that case it was highlighted that the test is whether the person has retained a continuity of association with the place, together with an intention to return to that place and an attitude that the place remains home.

The resides test was also considered in Iyengar v FCT 2011 ATC 10-222. In that case, the taxpayer was considered to be residing in Australia even though he had a two year work contract to work overseas and only returned to Australia twice in that time. He was in Australia for a period of 14 days and then later for a period of 10 days during that time. He intended to return to Australia after the contract finished and left his personal effects in Australia. It was highlighted that the term 'reside' should be given a wide meaning and that a person does not necessarily cease to be a resident because they are physically absent. The test is whether the person has retained a continuity of association with that place. Iyengar had the required continuity of association with Australia and was considered a resident under the resides test.

In your case, you have a work contract in country B and intend to return to Australia after. You have a home and job to return to in Australia. You have maintained your household items, furniture, cars and Australian bank accounts. Even though you and your family will be living in country B for a period, it is considered that you have retained a continuity of association with Australia.

Based on the factors listed above and your full circumstances, we consider that you satisfy the 'resides test' and are a resident of Australia under this test for the relevant period.

As you satisfy the 'resides test', it is not necessary to consider the other three tests.

Australian tax liability

In determining liability to tax in Australia, it is necessary to consider not only the income tax laws but also the International Tax Agreements Act 1953 (the Agreements Act) and any applicable double tax agreement contained in the Australian Treaties Series (ATS). The double tax agreements operate to avoid the double taxation of income received by Australian and foreign residents.

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one. Subsection 4(2) of the Agreements Act provides that the Agreements Act overrides the ITAA 1997 where there are inconsistent provisions (apart from Australia's general anti-avoidance rules and certain provisions dealing with limitations of tax credits).

Article 4 of the relevant agreement discusses the term resident.

Article 4(2) applies where anindividual is both an Australian and country B by reason of Art 4(1) and prescribes the following tie breaker tests, the application of which will mean that the individual is treated solely as a resident of one of the countries:

·         the person is deemed to be a resident only in the country in which a permanent home is available;

·         if the person has a permanent home in both countries or in neither country, the person is deemed to be a resident only in the country with which the individual dwells with their family and where the person's personal and economic relations are closer.

The tie breaker rules apply for the purposes of the relevant agreement. That is, they do not apply for the purposes of the domestic laws. Thus an individual continues to be treated as a resident of Australia for the purposes of the Australian domestic tax laws and may therefore be subject to tax in Australia.

In your case, we consider that for the purposes of the relevant agreement you are treated as a country B resident under the tie breaker tests.

Article 15(1) of the relevant agreement provides that income from employment derived by an individual who is a resident of country B is taxable only in country B unless the employment is exercised in Australia. If the employment is exercised in Australia, such remuneration may be taxed in Australia.

In your circumstances, your employment income derived while working in country B is assessable income only in country B and does not need to be included as assessable income on your Australian tax return.